The grouping of financial instruments for the purpose of assessing changes in credit risk on a homogeneous portfolio basis may change over time as new information becomes available. For securities, CFM Indosuez Wealth applies an absolute level of credit risk, in accordance with IFRS 9, below which exposures are classified in Stage 1 and depreciated on the basis of 12-month ECL. Thus, the following rules apply for monitoring a material deterioration in securities: - securities rated Investment Grade as of the reporting date will be classified in Stage 1 and provisioned on the basis of 12-month ECL; - securities rated Non-Investment Grade (NIG), at the reporting date, must be monitored for significant deterioration since origination and be classified in Stage 2 (lifetime ECL) if there is a significant deterioration in credit risk. The relative deterioration must be assessed before the default occurs (Stage 3). Restructuring due to financial difficulties Debt instruments restructured due to financial difficulties are those for which CFM Indosuez Wealth has modified the initial financial conditions (interest rate, maturity, etc.) for economic or legal reasons related to the borrower’s financial difficulties with new terms and conditions that would not have been considered in other circumstances. They therefore apply to all debt instruments, regardless of the debt instrument's classification category based on the deterioration in credit risk observed since initial recognition. In accordance with the definition provided by the EBA (European Banking Authority) in the chapter entitled Risk Factors and Risk Management – Risk Management, debt restructuring due to the debtor’s financial difficulties refers to all amendments made to one or more credit agreements for this reason, as well as refinancing granted as a result of the financial difficulties encountered by the client. This concept of restructuring must be assessed at agreement level and not at client level (no contagion). The definition of loans restructured due to financial difficulties therefore meets two cumulative criteria: - Contract amendments or debt refinancing (concessions); - A client in a difficult financial situation (debtor experiencing, or about to experience, difficulties in meeting financial commitments). The term “contract amendment” refers to situations in which: - There is a difference in the borrower’s favour between the amended contract and the previous conditions; - The changes to the contract grant the borrower concerned more favourable terms than other borrowers with a similar risk profile would have been able to obtain from the bank at the same time. “Refinancing” refers to situations in which a new loan is granted to the client to enable them to partially or fully repay another debt for which they cannot meet the contractual conditions due to their financial situation. The restructuring of a loan (performing or in default) assumes that there is a known risk of loss (Stage 3). The need to recognise impairment on the restructured exposure must therefore be analysed accordingly (restructuring does not automatically result in the recognition of impairment for proven losses or classification as default). The classification as a “restructured loan” is temporary. Once the restructuring operation, as defined by the EBA, has been completed, exposure retains this “restructured” status for a minimum period of 2 years, if the exposure was healthy at the time of restructuring, or a minimum period of 3 years if the exposure was in default at the time of restructuring. These periods are extended if certain events occur, (e.g. further incidents). If there is no derecognition related to this type of event, the reduction in future flows granted to the counterparty or the postponement of these flows to a more distant horizon during the restructuring gives rise to the recording of a discount in cost of risk. This represents the loss of future cash flow, discounted at the original effective rate. It is equal to the difference observed between: - The book value of the loan; - And the sum of theoretical future cash flow from the “restructured” loan, discounted at the original effective interest rate (defined at the financing commitment date). In the event of a waiver of part of the share capital, this amount shall constitute a loss to be recorded immediately in cost of risk. The discount recognised when a loan is restructured is accounted for under cost of risk. Upon reversal of the discount, the portion due to the passage of time is recorded in Net Banking Income. Bad debts When a loan is deemed uncollectible, i.e. when there is no longer any hope of it being recovered in full or in part, the amount deemed uncollectible should be derecognised from the balance sheet and written off. The decision as to when to write off a loan is based on expert opinion. This must therefore be established by each entity with its Risk Management Department, based on its knowledge of its own business. Before any loss is recorded, a depreciation should have been recorded in Stage 3 (with the exception of assets measured at fair value through profit or loss). For loans at amortised cost or fair value through other comprehensive income on items that may be reclassified, the amount written off is recorded under cost of risk (nominal amount) and Net Banking Income (NBI) for interest. Annual Report 2025 87
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